A Balanced Budget Would Finish Us Off

Published: September 2, 1990

To the Editor:

Those of us who are old enough can remember the political battle fought in 1932 between Franklin D. Roosevelt and Herbert Hoover. The main issue was which candidate would best reduce Government expenditures and balance the budget, thus restoring prosperity. Roosevelt, the winner, fortunately did not follow his own campaign position on fiscal soundness, at least not until after he was re-elected in 1936 and then seriously tried to balance the budget. The result: a serious recession in 1937.

We now know that the nation did not pull itself out of the Great Depression until two things happened: (1) Starting in 1940, we had massive deficits, in contrast to the small ones of the 1930's. (2) We undertook massive military expenditures (that justified the huge deficits and did not clog up the civilian marketplace with overproduced civilian goods).

Each of these justified the other and continued to do so until recently. This formula for prosperity (at the expense of future generations) has continued successful for 50 years. Now, the collapse of the Communist threat and the explosive political campaign for a balanced budget threaten to return us to 1939. We have not solved the problems of the national economy, but learned to live with them.

Contrary to the conventional wisdom of economics and economists, it is my belief that the national budget cannot be balanced, at least not for more than one fiscal year. If we succeed in moving dramatically toward a balanced budget, a major recession will hit us, greatly reducing tax income and increasing Government expenditures through what is left of the ''safety net.'' Success will beget failure. If we come to believe, like Hoover and Roosevelt in 1932 that a balanced budget will cure our economic ills, we will likely move from recession to Great Depression II.

We should remember that government deficits tend to transfer money from those who have it but are not using it to those who want to consume and invest. This is an essential function, and we must somehow learn to live with it, without the dire consequences of multitrillion-dollar debt.

In the words of John Maynard Keynes, there must be a better answer than to leave huge pump-priming deficits to future generations. But remember, Keynes also noted in his definitive economic forecast that ''in the long run, we are all dead.'' So why worry?

JACK C. PLANO

Kalamazoo, Mich., Aug. 17, 1990

The writer is a professor emeritus of political science at Western Michigan University.